JETBLUE AIRWAYS CORP (JBLU) FY 2022 MD&A

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Coronavirus (COVID-19) Pandemic

Although the spread of the Omicron variants temporarily decelerated the demand for travel in early 2022, customer confidence continued to grow over the course of the year, resulting in our return to profitability in the second half of 2022.

2022 Results

Our 2022 and 2021 results were adversely impacted by the COVID-19 pandemic. As a result, comparisons of our 2022 results to 2021 are not necessarily indicative of future operating results. In certain cases, we have also included comparisons of our 2022 results to our 2019 results which are more reflective of pre-pandemic operations.

For the year ended December 31, 2022:

•System capacity increased by 19.1% year-over-year and increased by 1.0% compared to 2019.

•We generated $9.2 billion in operating revenue, an increase of $3.1 billion compared to 2021, primarily due to a 31.5% increase in revenue passengers. When compared to 2019, our operating revenue increased by 13.1%, primarily driven by a 12.5% increase in yield, offset by a decrease in revenue passengers of 7.4%.

•Operating revenue per available seat mile (RASM) increased by 27.3% to 14.20 cents year-over-year and increased by 12.0% compared to 2019.

•Operating expense increased by 54.6% year-over-year to $9.5 billion and increased by 29.6% compared to 2019.

•Operating expense per available seat mile (CASM) increased by 29.7% to 14.67 cents year-over-year and increased by 28.4% compared to 2019.

•Our 2022 and 2021 results included the effects of special items. Excluding fuel and related taxes, special items, as well as operating expenses related to our non-airline businesses, our 2022 operating expense(1) increased by 13.0% to $6.2 billion, as compared to 2021. When compared to 2019, our operating expenses excluding fuel and related taxes, special items, as well as operating expenses related to our non-airline businesses(1) increased by 14.8%.

•Excluding fuel and related taxes, special items, as well as operating expenses related to our non-airline businesses, our cost per available seat mile (CASM ex-fuel)(1) decreased by 5.2% to 9.59 cents year-over-year and increased by 13.6% compared to 2019.

•Our operating margin was (3.3)% in 2022, (1.3)% in 2021, and 9.9% in 2019. Excluding special items, our adjusted operating margins(1) were (2.0)%, (15.1)%, and 10.1% for the full years 2022, 2021, and 2019, respectively.

•We reported a net loss of $(362) million in 2022 compared to a net loss of $(182) million in 2021. In 2019, reported net income was $569 million.

•Our reported loss per share for 2022 and 2021 was $(1.12) and $(0.57), respectively. Excluding special items, our adjusted loss per share(1) was $(0.80) for 2022, and $(2.51) for 2021. For 2019, our reported earnings per diluted share was $1.91 and adjusted earnings per diluted share(1) was $1.90.

•During 2022, we took delivery of two Airbus A321neo aircraft and six Airbus A220 aircraft.

Outlook for 2023

We faced operational disruptions in the first half of 2022 due to the impact of the Omicron variant, as well as staffing constraints that drove incremental challenges. We took decisive action to right-size our growth plan for the remainder of the year, made additional investments into our operation, and implemented a new structural cost program to improve our operational efficiency and ensure we maintain a competitive cost structure. Despite these headwinds, we generated record annual revenue of $9.2 billion, ultimately resulting in our return to profitability in the second half of 2022. We believe that the strong operational and financial foundation we set in 2022 positions JetBlue for future success.

For full year 2023, we expect our capacity to increase between 5.5% and 8.5% compared to 2022 as we plan to execute growth across our high-value network, including annualized growth through the NEA. We expect revenue to grow high single digits to low double digits year-over-year. We are focused on driving revenue growth through the maturation of our NEA, the evolution of our TrueBlue® loyalty program, and continued momentum from JBTP. We also plan to keep our cost structure competitive. We expect cost per available seat mile, excluding fuel and related taxes, and operating expenses related to other non-airline businesses (CASM ex-fuel), for 2023 to increase by between approximately 1.5% to 4.5% year-over-year which

(1) Refer to our “Regulation G Reconciliation of Non-GAAP Financial Measures” at the end of this section for more information on this non-GAAP measure.

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includes an approximate 3% point impact from a new ALPA agreement. We expect to deliver value to our customers and shareholders with strong revenue generation combined with our plan to keep costs low. Our expectations for full year 2023 earnings per share to be in the range of $0.70 to $1.00 implies a margin trajectory approaching pre-pandemic levels as we move through the year.

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RESULTS OF OPERATIONS

As discussed in Note 1 to our consolidated financial statements, in 2021, a new SEC rule became effective that is intended to modernize, simplify, and enhance certain disclosures throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The new rule allows us to omit selected financial data for the preceding five years and discussions comparing 2021 and 2020 results, as such disclosures were included in our Annual Report on Form 10-K for the year ended December 31, 2021, which is available on the SEC's website at www.sec.gov. Please note that although our 2022 and 2021 results were adversely impacted by the COVID-19 pandemic, the impact of COVID-19 on our operating results for 2022 and 2021 were different. As a result, comparisons of our 2022 results to 2021 may not necessarily be indicative of changes between operating results for future reporting periods.

2022 Compared to 2021

Overview

We reported a net (loss) of $(362) million, an operating (loss) of $(298) million and operating margin of (3.3)% for the year ended December 31, 2022. This compares to net (loss) of $(182) million, operating (loss) of $(80) million, and operating margin of (1.3)% for the year ended December 31, 2021. Our (loss) per share was $(1.12) for 2022 compared to $(0.57) for 2021.

Our 2022 and 2021 reported results included the effects of special items. Adjusting for these one-time items, our adjusted net (loss)(1) was $(260) million, adjusted operating (loss)(1) was $(185) million, and our adjusted operating margin(1) was (2.0)% for 2022. This compares to an adjusted net (loss)(1) of $(800) million, adjusted operating (loss)(1) of $(913) million, and an adjusted operating margin(1) of (15.1)% for 2021. Excluding one-time items, our adjusted (loss) per share(1) was $(0.80) for 2022 compared to $(2.52) for 2021.

Operating Revenues

Passenger revenue accounted for 93.8% of our total operating revenue for the year ended December 31, 2022. In addition to seat revenue, passenger revenue includes revenue from our ancillary product offerings such as Even More® Space. Revenue generated from international routes, including Puerto Rico, accounted for 34% of our total operating revenues in 2022. Passenger revenue, including certain ancillary fees directly related to passenger tickets, is recognized when the transportation is provided. Passenger revenue from unused tickets and passenger credits are recognized in proportion to flown revenue based on estimates of expected expiration or when the likelihood of the customer exercising his or her remaining rights becomes remote. We measure capacity in terms of available seat miles, which represents the number of seats available for passengers multiplied by the number of miles the seats are flown. Yield, or the average amount one passenger pays to fly one mile, is calculated by dividing Passenger revenue by Revenue passenger miles. We attempt to increase Passenger revenue primarily by increasing our yield per flight which produces higher revenue per available seat mile. Our objective is to optimize our fare mix to increase our overall average fare while continuing to provide our customers with competitive fares.

(1) Refer to our “Regulation G Reconciliation of Non-GAAP Financial Measures” at the end of this section for more information on this non-GAAP measure.

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In 2022, Passenger revenue increased by $2.98 billion, or 53.1% year-over-year. The increase was primarily driven by the demand for travel as we gradually recovered from the COVID-19 pandemic coupled with benefits from revenue initiatives such as enhancements to our Fare Options aimed at providing our customers more choices, more flexibility, and lower fares. We saw a 31.5% increase in Revenue passengers and a 16.4% increase in average fares compared to 2021.

Other revenue is primarily comprised of the marketing component of the sales of our TrueBlue® points. It also includes revenue from the sale of vacation packages, ground handling fees received from other airlines, and rental income. In 2022, other revenue increased by $144 million, or 33.5%, principally driven by a $106 million increase in marketing revenue associated with our TrueBlue® program due to higher customer spend and acquisitions.

Operating Expenses

Aircraft Fuel and Related Taxes

Aircraft fuel and related taxes represented 32.8% of our total operating expenses in 2022 compared to 23.5% in 2021. The average fuel price increased 79.1% in 2022 to $3.69 per gallon. Our fuel consumption increased by 21.0%, or 146 million gallons, due to capacity increases as demand for travel grew. We expect our fuel consumption to be higher in 2023 as we anticipate returning capacity to pre-pandemic levels.

We recognized fuel hedge losses of $7 million in 2022 on our consolidated statement of operations. There were no fuel hedge gains or losses recognized in 2021. These losses were recorded in Aircraft fuel and related taxes.

Salaries, Wages and Benefits

Salaries, wages, and benefits increased $389 million, or 16.5% in 2022, driven primarily by higher total hours worked by our crewmembers as we aligned our workforce with the increase in demand for air travel and the need for premium and incentive pay to support our operation during the first half of the year. Our crewmember headcount also increased year-over-year. During 2022, the average number of full-time equivalent crewmembers increased by 20.3%.

Landing Fees and Other Rents

Landing fees and other rents include landing fees, which are at premium rates in the heavily trafficked northeast corridor of the U.S. through which a large number of our flights operate. Other rents primarily consist of rent for airports in our BlueCities. Landing fees and other rents decreased $84 million, or 13.3%, in 2022. The year-over-year decrease is primarily driven by rate normalization resulting from airport traffic recovery closer to pre-COVID-19 levels. Departures increased by 25.8% compared to 2021. We expect landing fees and other rents to increase in 2023 due to operating and growing in high-cost terminals. We expect full year 2023 capacity to increase between by 5.5% and 8.5% compared to 2022.

Depreciation and Amortization

Depreciation and amortization primarily include depreciation for our owned and finance leased aircraft, engines, and inflight entertainment systems. Depreciation and amortization increased $45 million, or 8.4%, primarily driven by an increase in the average number of aircraft operating in 2022 compared to the same period in 2021. We placed seven new aircraft into service during 2022.

(1) Refer to our “Regulation G Reconciliation of Non-GAAP Financial Measures” at the end of this section for more information on this non-GAAP measure.

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Aircraft Rent

Aircraft rent increased $15 million, or 15.0%, in 2022. This increase was driven primarily by an increase of 21 leased engines in 2022 which we added to the fleet to support end of life optimization and continuity of the operation due to supply chain constraints.

Sales and Marketing

Sales and marketing increased $106 million, or 57.7%, in 2022 driven by higher credit card fees and computer reservation system charges, which are directly related to demand increases as we recover from the pandemic. Revenue passengers increased by 31.5% in 2022 to 39.6 million compared to 30.1 million in 2021.

Maintenance, Materials and Repairs

Maintenance, materials, and repairs are generally expensed when incurred unless covered by a long-term flight hour services contract. The average age of our aircraft in 2022 was 12.4 years. As our fleet ages our maintenance costs will increase significantly, both on an absolute basis and as a percentage of our unit costs, as older aircraft require additional, more expensive repairs over time. We had an average of 11.8 additional total operating aircraft in 2022 compared to 2021.

In 2022, Maintenance, materials and repairs decreased by $35 million, or 5.7% compared to 2021. The decrease was driven by a decrease in the number of heavy engine maintenance events in 2022 as compared to 2021, which was partially offset by an increase in other maintenance activity driven by an increase in flying.

Other Operating Expenses

Other operating expenses consist of the following categories: outside services, airport expenses (including expenses related to fueling, ground handling, skycap, security, and catering services), personnel expenses, professional and legal fees, onboard supplies, shop and office supplies, bad debts, communication costs, and taxes other than payroll and fuel taxes.

In 2022, other operating expenses increased by $288 million, or 26.7%, compared to 2021 due to higher levels of operations in response to the increased demand for air travel. Scheduled departures increased by 25.8% in 2022.

Special Items

In 2022, special items included the following:

•Impairment of $52 million relating to our Embraer E190 fleet transition;

•Expense of $32 million related to the ALPA ratification bonus and associated payroll taxes;

•Expense of $28 million related to our acquisition of Spirit Airlines; and

•Expense of $1 million relating to the implementation of the TWU contract.

Special items in 2021 included the following:

•Contra-expense of $830 million, which represents the amount of federal payroll support grants utilized during the period;

•Contra-expense of $11 million related to the recognition of Employee Retention Credits provided by the CARES Act; and

•One-time costs of $8 million related to the ratification of the collective bargaining agreement with our inflight crewmembers.

(1) Refer to our “Regulation G Reconciliation of Non-GAAP Financial Measures” at the end of this section for more information on this non-GAAP measure.

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CONSOLIDATED BALANCE SHEET ANALYSIS

Below is a discussion of the significant changes on our consolidated balance sheet between December 31, 2022 and December 31, 2021.

Investment securities

Short-term investment securities decreased by $474 million, or 57.5%, primarily driven by the maturities of our time deposits that were outstanding at December 31, 2021.

Receivables, net of allowance

Receivables, net of allowance, increased by $110 million, or 53.2%, as a result of improvements in customer demand which led to an increase in receivables from our credit card sales We also saw an increase in receivables from our co-brand and loyalty partnerships.

Investment securities (non-current)

Long-term investment securities increased by $133 million principally driven by the purchases of corporate bonds in 2022.

Accounts payable

Accounts payable increased by $33 million, or 6.5%, primarily due to increases in operating expenses and timing of payments. Customer demand has rebounded in 2022 to pre-pandemic levels. We operated almost 30,000 flights in December 2022 compared to over 26,000 flights in December 2021.

Other accrued liabilities

Other accrued liabilities increased by $127 million, or 35.8%, principally driven by the timing of passenger tax remittances to governmental authorities. Passenger taxes are collected from customers when tickets are sold and remitted to the authorities at a later date. The increase in passenger tax liability correlates to the increase in demand for travel as we recovered from the COVID-19 pandemic. In addition, the initial cash payments received from our new co-branded credit card agreements are deferred and recognized as revenue over the terms of the related contracts. Deferred amounts are classified as other accrued liabilities and other liabilities on our consolidated balance sheet.

Total debt and finance lease obligations

Total debt and finance lease obligations decreased by $359 million, or 9%, due primarily to $369 million of debt repayments made during 2022.

Other liabilities

Other liabilities decreased by $58 million principally due to the initial cash payments received from our new co-branded credit card agreements in 2021. The initial cash payments received from our new co-branded credit card agreements are deferred and recognized as revenue over the terms of the related contracts. Deferred amounts are classified as other accrued liabilities and other liabilities on our consolidated balance sheet.

(1) Refer to our “Regulation G Reconciliation of Non-GAAP Financial Measures” at the end of this section for more information on this non-GAAP measure.

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LIQUIDITY AND CAPITAL RESOURCES

The airline business is capital intensive. Our ability to successfully execute our growth plans is largely dependent on the continued availability of capital on attractive terms. In addition, our ability to successfully operate our business depends on maintaining sufficient liquidity. We believe we have adequate resources from a combination of cash and cash equivalents and investment securities on-hand. During 2020, we executed a significant number of financing transactions to ensure that we had adequate levels of liquidity to navigate through the challenges posed by the COVID-19 pandemic. As we recovered in 2021 and 2022, our focus shifted to strengthening our balance sheet, lowering our total cost of debt, and growing our unencumbered asset base. As of December 31, 2022, our unrestricted cash, cash equivalents, and short-term investments totaled $1.4 billion. Our adjusted debt to capitalization ratio(1) at December 31, 2022 was 52%, down from 53% at December 31, 2021.

We believe a healthy liquidity position is a crucial element of our ability to weather any part of the economic cycle while continuing to execute on our plans for profitable growth and increased returns. Our goal is to continue to be diligent with our liquidity, maintain financial flexibility, and be prudent with capital spending.

Analysis of Cash Flows

We had unrestricted cash and cash equivalents of $1.0 billion as of December 31, 2022. This compares to $2.0 billion and $1.9 billion as of December 31, 2021 and 2020, respectively. We held both short and long-term investments in 2022, 2021, and 2020. Our short-term investments totaled $350 million as of December 31, 2022 compared to $824 million and $1.1 billion as of December 31, 2021 and 2020, respectively.

Operating Activities

Cash provided by operating activities totaled approximately $379 million in 2022. This compares to cash provided by operating activities of $1.6 billion in 2021 and cash used in operating activities of $683 million in 2020. 2021 includes federal grants received under various payroll support programs, and the initial cash receipts associated with our new co-branded credit card agreements, contributing to the $1.3 billion decrease in operating cash flows year-over-year. Cash provided by operating activities increased by $2.3 billion in 2021 compared to 2020 principally driven by the receipt of federal grants in 2021 and the unprecedented decline in demand for air travel caused by the COVID-19 pandemic in 2020.

Investing Activities

Cash used in investing activities totaled approximately $908 million, $704 million, and $1.35 billion in 2022, 2021, and 2020, respectively.

During 2022, capital expenditures related to our purchase of flight equipment included $430 million for the purchase of two new Airbus A321neo aircraft, six Airbus A220 aircraft, and a number of spare engines; $156 million for flight equipment deposits, $141 million for flight equipment work-in-progress; and $64 million for spare part purchases. Other property and equipment capital expenditures included ground equipment purchases and facilities improvements for $132 million. Investing activities in 2022 also included the net proceeds of $321 million from our investment securities. In 2022, investing activities also included $297 million in payments related to our acquisition of Spirit.

During 2021, capital expenditures related to our purchase of flight equipment included $637 million for the purchase of eight new Airbus A321neo aircraft, seven Airbus A220 aircraft, and a number of spare engines; $88 million for flight equipment deposits; $133 million for flight equipment work-in-progress; and $44 million for spare part purchases. Other property and equipment capital expenditures included ground equipment purchases and facilities improvements for $93 million. Investing activities in 2021 also included the net proceeds of $296 million from our investment securities.

During 2020, capital expenditures related to our purchase of flight equipment included $426 million for the purchase of seven new Airbus A321neo aircraft, our first A220 Aircraft, and the buyout of one Airbus A321 aircraft lease; $76 million for flight equipment deposits; $151 million for flight equipment work-in-progress; and $15 million for spare part purchases. Other property and equipment capital expenditures included ground equipment purchases and facilities improvements for $123 million. Investing activities in 2020 also included the net purchase of $767 million in investment securities.

We executed aircraft sale-leaseback transactions totaling $563 million in 2020, which provided an additional source of liquidity during the COVID-19 pandemic. Of these transactions, $209 million qualified as sales for accounting purposes and the related proceeds are classified within investing activities. The remaining $354 million which did not qualify as sales for accounting purposes are treated as cash from financing activities as noted below.

We currently anticipate capital expenditures of approximately $220 million for the first quarter of 2023, and approximately $1.3 billion for the full year 2023.

(1) Refer to our “Regulation G Reconciliation of Non-GAAP Financial Measures” at the end of this section for more information on this non-GAAP measure.

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Financing Activities

We made progress in strengthening our balance sheet in 2022 by reducing our total debt balance from $4.0 billion at December 31, 2021 to $3.6 billion at December 31, 2022.

Financing activities during the year primarily consisted of debt repayments of $369 million on our outstanding debt and finance lease obligations, which included the following repayments and extinguishments:

•$351 million on our term loan debt;

•$11 million towards early extinguishment of debt;

•$6 million on our sale leaseback obligations; and

•$1 million on our finance lease.

These principal payments were partially offset by:

•$52 million in proceeds from the issuance of common stock related to our crewmember stock purchase plan.

Also included in financing activities during 2022 were $37 million in financing fees, of which $35 million was related to the $3.5 billion Senior Secured Bridge Facility to support the purchase of Spirit, and $6 million used for the acquisition of treasury stock, which represents the return of shares to satisfy tax payments associated with crewmember stock compensation that vested during the period.

We plan to continue to opportunistically pay down those obligations with the highest costs as we continue to manage through the recovery.

Financing activities during 2021 primarily consisted of debt repayments of $1.9 billion on our outstanding debt and finance lease obligations, which included the following repayments:

•$722 million on our term loan facility;

•$550 million on our revolving credit facility; and

•$115 million on our secured loan balance under the CARES Act Loan Program.

These principal payments were partially offset by:

•Net proceeds of $734 million from the issuance of our 0.50% Convertible Senior Notes due 2026;

•Net proceeds of $276 million and $14 million from the issuances of unsecured term loans and warrants, respectively, in connection with Payroll Support Program 2 under the Consolidated Appropriations Act and Payroll Support Program 3 under the American Rescue Plan Act; and

•$46 million in proceeds from the issuance of common stock related to our crewmember stock purchase plan.

Also included in financing activities during 2021 were $8 million used for the acquisition of treasury stock which represents the return of shares to satisfy tax payments associated with crewmember stock compensation that vested during the period.

Financing activities during 2020 primarily consisted of net proceeds of $2.2 billion from drawdowns of our credit facilities and the execution of a number of financing transactions which included the following:

•$981 million from our 364-day delayed draw term loan facility;

•$717 million from a term loan facility; and

•$550 million from our revolving credit facility.

Also included in financing activities during 2020 were:

•Net proceeds of $913 million from the public placements of equipment notes;

•Net proceeds of $583 million from the offering of 42 million shares of our common stock;

•$354 million of aircraft sale-leaseback transactions which did not qualify as sales for accounting purposes;

•Net proceeds of $259 million and $19 million from the issuance of unsecured term loan and warrants, respectively, in connection with the Payroll Support Program under the CARES Act;

(1) Refer to our “Regulation G Reconciliation of Non-GAAP Financial Measures” at the end of this section for more information on this non-GAAP measure.

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•Net proceeds of $105 million and $9 million from the issuance of secured term loan and warrants, respectively, in connection with the CARES Act Loan Program; and

•$35 million in proceeds from the issuance of common stock related to our crewmember stock purchase plan.

These proceeds were partially offset by the payoff of our 364-day delayed draw term loan facility for $1.0 billion, scheduled maturities of $372 million relating to debt and finance lease obligations, $12 million of which were associated with scheduled rent payments on sale-leaseback aircraft that did not qualify as sales for accounting purposes, and the acquisitions of treasury shares of $167 million, of which $160 million related to our accelerated share repurchases, or ASRs. Our share repurchase program has been suspended since March 31, 2020.

In February 2022, we filed an automatic shelf registration statement with the SEC. Under this shelf registration statement, we may offer and sell from time to time common stock, preferred stock, debt securities, depository shares, warrants, stock purchase contracts, stock purchase units, subscription rights, and pass-through certificates. We may utilize this shelf registration statement, or a replacement filed with the SEC, in the future to raise capital to fund the continued development of our products and services, the commercialization of our products and services, to repay indebtedness, or for other general corporate purposes. The warrants issued by JetBlue to Treasury under the Acts were made, and any issuances of our underlying common stock are expected to be made, in reliance on the exemption from the registration afforded by Section 4(a)(2) of the Securities Act for transactions not involving a public offering.

None of our lenders or lessors are affiliated with us.

Capital Resources

Dependent on market conditions, we anticipate using debt financing for our expected aircraft deliveries in 2023. To the extent we cannot secure financing on terms we deem attractive, we may be required to pay in cash, further modify our aircraft acquisition plans, or incur higher than anticipated financing costs. Although we believe debt and/or lease financing should be available to us if needed, we cannot give assurances we will be able to secure financing on terms attractive to us, if at all.

We have a revolving line of credit with Morgan Stanley for up to approximately $200 million. This line of credit is secured by a portion of our investment securities held by Morgan Stanley and the borrowing amount may vary accordingly. This line of credit bears interest at a floating rate based upon the London Interbank Offered Rate, or LIBOR, plus a margin. We did not borrow under this facility in 2022 or 2021.

We have a revolving Credit and Guaranty Agreement with Citibank N.A. as the administrative agent, for up to $600 million (the “Revolving Facility”). The term of the Revolving Facility runs through October 2024. Borrowings under the Revolving Facility bear interest at a variable rate equal to SOFR, plus a margin. The Revolving Facility is secured by spare parts, aircraft, simulators, and certain other assets as permitted thereunder. The Revolving Facility includes covenants that require us to maintain certain minimum balances in unrestricted cash, cash equivalents, and unused commitments available under revolving credit facilities. In addition, the covenants restrict our ability to, among other things, dispose of certain collateral, or merge, consolidate, or sell assets. As of and for the years ended December 31, 2022 and 2021, we did not have a balance outstanding or any borrowings under the Revolving Facility.

Working Capital

We had a working capital deficit of $1.8 billion as of December 31, 2022 compared to a deficit of $172 million as of December 31, 2021. Our working capital decreased by $1.7 billion due to several factors, including a decrease in cash and cash equivalents due to debt repayments on our outstanding debt and finance lease obligations and an increase in current maturities of long term debt related to sale leaseback transactions.

Working capital deficits can be customary in the airline industry since a large portion of air traffic liability is classified within current liability.

We expect to meet our obligations as they become due through available cash, investment securities, and internally generated funds, supplemented, as necessary, by financing activities and federal government assistance programs, which may be available to us. We expect to generate positive operating cash flow. However, we cannot predict what the effect on our business might be from the extremely competitive environment in which we operate, or from events beyond our control, such as volatile fuel prices, economic conditions, weather-related disruptions, airport infrastructure challenges, the spread of infectious diseases, the impact of other airline bankruptcies, restructurings or consolidations, U.S. military actions, or acts of terrorism. We believe there is sufficient liquidity available to us to meet our cash requirements for at least the next 12 months.

(1) Refer to our “Regulation G Reconciliation of Non-GAAP Financial Measures” at the end of this section for more information on this non-GAAP measure.

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Debt and Finance Leases

As part of our efforts to effectively manage our balance sheet, we expect to continue to actively manage our debt balances. Our approach to debt management includes managing the mix of fixed and floating rate debt, annual maturities of debt, and the weighted average cost of debt. Additionally, our unencumbered assets allow some flexibility in managing our cost of debt and capital requirements.

CONTRACTUAL OBLIGATIONS

Our contractual obligations at December 31, 2022 include the following (in billions):

(1)Includes actual interest and estimated interest for floating-rate debt based on December 31, 2022 rates.

(2)Amounts include non-cancelable commitments for the purchase of goods and services.

The interest rates are fixed for $3.6 billion of our debt and finance lease obligations, with the remaining $0.1 billion having floating interest rates. The floating interest rates adjust either quarterly or semi-annually based on LIBOR. The weighted average maturity of all of our debt was six years as of December 31, 2022.

As of December 31, 2022, we believe we were in compliance with the covenants of our debt and lease agreements and approximately 65% of our owned property and equipment and intangible assets at net book value were pledged or committed to be pledged as security under various loan agreements.

As of December 31, 2022, we had operating lease obligations for 62 aircraft with lease terms that expire between 2023 and 2032. Our aircraft lease agreements contain termination provisions which include standard maintenance and return conditions. Our policy is to record these lease return conditions when they are probable and the costs can be estimated. We also lease airport terminal space and other airport facilities in each of our markets, as well as office space and other equipment. We have approximately $105 million of restricted assets pledged under standby letters of credit related to certain of our leases which will expire at the end of the related leases. In November 2022, we partnered with JMP to finance, develop and operate JFK's Terminal 6 through a $65 million letter of credit in exchange for 5% ownership. This amount is included in restricted cash on the consolidated balance sheet as of December 31, 2022. As of December 31, 2022, the average age of our operating fleet was 12.4 years.

Our firm aircraft order book as of December 31, 2022 was as follows1:

(1) Our aircraft order book is subject to change based on modifications to the contractual agreements or changes in the delivery schedules.

Committed expenditures for our firm aircraft and spare engines include estimated amounts for contractual price escalations and pre-delivery deposits. We expect to meet our pre-delivery deposit requirements for our aircraft by paying cash or by using short-term borrowing facilities for deposits generally required six to 24 months prior to delivery. Any pre-delivery deposits paid by the issuance of notes are fully repaid at the time of delivery of the related aircraft.

(1) Refer to our “Regulation G Reconciliation of Non-GAAP Financial Measures” at the end of this section for more information on this non-GAAP measure.

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Our Terminal at JFK, T5, is governed by a lease agreement we entered into with the PANYNJ in 2005. We are responsible for making various payments under the lease. This includes ground rents for the terminal site which began at the time of the lease execution in 2005 and facility rents commenced in October 2008 upon our occupancy of T5. The facility rents are based on the number of passengers enplaned out of the terminal, subject to annual minimums. The PANYNJ reimbursed us for construction costs of this project in accordance with the terms of the lease, except for approximately $76 million in leasehold improvements provided by us. In 2012, we amended this lease to include additional ground space for our international arrivals facility, T5i, which we opened in November 2014. Minimum ground and facility rents at JFK totaling $496 million are included in the commitments table above as operating lease obligations. In November 2022, we amended the lease to relinquish a portion of the former Terminal 6 property to allow for development of a new Terminal 6 by our development partners JMP.

Reaffirming our commitment to New York, in February 2022, we executed a new lease for our primarily corporate offices that will extend our stay in the present Long Island City location until 2039. The term of this lease will begin in 2023. The new lease increased our lease commitments by approximately $3 million in 2024, $6 million in 2025, $8 million in 2026, and an anticipated lease expenditure of $100 million thereafter. We have a one-time option to terminate the lease in 2034. At the end of the initial lease term, we have the option to renew the lease for either one renewal term of 10 years, or two renewal terms of five years each.

We enter into individual employment agreements with each of our non-unionized FAA-licensed crewmembers, inspectors, and air traffic controllers. Each employment agreement is for a term of five years and automatically renews for an additional five-year term unless the crewmember is terminated for cause or the crewmember elects not to renew it. Pursuant to these agreements, these crewmembers can only be terminated for cause. In the event of a downturn in our business requiring a reduction in flying and related work hours, we are obligated to pay these crewmembers a guaranteed level of income and to continue their benefits. As we are not currently obligated to pay this guaranteed income and benefits, no amounts related to these guarantees are included in the contractual obligations table above.

OFF-BALANCE SHEET ARRANGEMENTS

We have determined that we hold a variable interest in, but are not the primary beneficiary of, certain pass-through trusts. The beneficiaries of these pass-through trusts are the purchasers of equipment notes issued by us to finance the acquisition of aircraft. Each trust maintains a liquidity facility whereby a third party agrees to make payments sufficient to pay up to 18 months of interest on the applicable certificates if a payment default occurs.

We have also made certain guarantees and indemnities to other unrelated parties that are not reflected on our consolidated balance sheets, which we believe will not have a significant impact on our results of operations, financial condition or cash flows. We have no other off-balance sheet arrangements. See Notes 3, 4, and 11 to our consolidated financial statements included in Item 8, for a more detailed discussion of our variable interests and other contingencies, including guarantees and indemnities.

(1) Refer to our “Regulation G Reconciliation of Non-GAAP Financial Measures” at the end of this section for more information on this non-GAAP measure.

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CLIMATE CHANGE

Concern over climate change, including the impact of global warming, has led to significant U.S. and international legislative and regulatory efforts to limit greenhouse gas emissions, including our aircraft and ground operations emissions. Below is a discussion of the regulations that are relevant to JetBlue and the efforts we have taken to address climate change.

Legislation, Regulation, and Accords on Climate Change

Carbon Offsetting and Reduction Scheme for International Aviation

In October 2016, ICAO passed a resolution adopting the Carbon Offsetting and Reduction Scheme for International Aviation (“CORSIA”), which is a global, market-based emissions offset program to encourage carbon-neutral growth beyond 2020. Annual international emissions reporting is required via CORSIA as of the 2019 reporting year, and offsetting compliance is scheduled to be implemented through multiple phases beginning in 2021. In 2020, given the impact of COVID-19 which dramatically reduced 2020 emissions, ICAO agreed that the baseline from which the industry achieves carbon neutral growth would be from 2019 only, rather than an average of 2019 and 2020 as originally intended. ICAO continues to develop details regarding implementation, but we expect compliance with CORSIA will increase our operating costs.

Sustainable Skies Act

In May 2021, the Sustainable Skies Act was introduced in the United States Congress to amend the Internal Revenue Code of 1986 to provide a tax credit for sustainable aviation fuel (“SAF”). Under this proposal, SAF that achieve 50% or greater reduction in lifecycle GHG emissions would be eligible to receive a tax credit ranging from $1.50 per gallon to $2.00 per gallon.

We are supportive of this proposed legislation and consider this to be a meaningful development to stimulate the production of SAF, making it more affordable and widely available. We believe this to be an important step in helping the U.S. airline industry reach its goal of achieving net-zero carbon emissions by 2050.

Actions Taken to Address Climate Change

JetBlue is committed to proactively responding to climate change by taking meaningful steps to decarbonize our business and mitigating climate risks that may materially impact the business. As one of our key company-wide strategic priorities, we are pursuing six key levers to decarbonize our business. We discuss these levers and other sustainability initiatives in “Item 1. Business – Environmental, Social Governance – Environmental” above.

Other Impacts of Climate Change

The number of extreme weather events, such as hurricanes, typhoons, wildfires, and rainstorms, associated with climate change is expected to increase. Occurrences of these extreme weather events may result inflight cancellations, delays, and diversions, severely impacting our operations and thus adversely affecting our financial results and conditions.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of our consolidated financial statements in conformity with generally accepted accounting principles in the United States, or GAAP, requires management to adopt accounting policies as well as make estimates and judgments to develop amounts reported in our financial statements and accompanying notes. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the estimates that are required to prepare our financial statements. We believe our estimates and judgments are reasonable; however, actual results and the timing of recognition of such amounts could differ from those estimates. In addition, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information.

Critical accounting policies and estimates are defined as those that are reflective of significant judgments and uncertainties that could potentially result in materially different results under different assumptions and conditions. The policies and estimates discussed below have been reviewed with our independent registered public accounting firm and with the Audit Committee of our Board of Directors. For a discussion of these and other significant accounting policies, see Note 1 to our consolidated financial statements included in Item 8.

Passenger Revenue

Ticket sales and the fees collected for related ancillary services are initially deferred in air traffic liability. Air traffic liability represents tickets sold but not yet flown, credits which can be used for future travel, and a portion of the liability related to our TrueBlue® loyalty program. We allocate the transaction price to each performance obligation identified in a passenger ticket on a relative standalone basis. Passenger revenue, including certain ancillary fees directly related to passenger tickets, is recognized when the transportation is provided. Taxes that we are required to collect from our customers, including foreign and U.S. federal transportation taxes, security taxes, and airport facility charges, are excluded from passenger revenue. Those taxes and fees are recorded as a liability upon collection and are relieved from the liability upon remittance to the applicable governmental agency.

The majority of the tickets we sell are non-refundable. Non-refundable fares may be canceled prior to the scheduled departure date for a credit for future travel. Refundable fares may be canceled at any time prior to the scheduled departure date. Failure to cancel a refundable fare prior to departure will result in the cancellation of the original ticket and an issuance of a credit for future travel. Passenger credits can generally be used for future travel up to a year from the date of issuance. In response to the impact of COVID-19 on air travel, we extended the expiration dates for travel credits issued from February 27, 2020 through June 30, 2020 to a 24-month period. In January 2022, in response to the surge in COVID-19 cases and flight cancellations in late 2021, we further extended the expiration dates for travel credits with an original expiration date between February 1, 2020 through September 29, 2022 to September 30, 2022. All credits extended due to COVID-19 have expired as of December 31, 2022.

Passenger breakage revenue from unused tickets and passenger credits will be recognized in proportion to flown revenue based on estimates of expected expiration when the likelihood of the customer exercising his or her remaining rights becomes remote. Breakage revenue consists of non-refundable tickets that remain unused past the departure date, have continued validity, and are expected to ultimately expire unused, as well as passenger credits that are not expected to be redeemed prior to expiration. JetBlue uses estimates based on historical experience of expired tickets and credits and considers other factors that could impact future expiration patterns of tickets and credits. Tickets which do not have continued validity past the departure date are recognized as revenue after the scheduled departure date has lapsed.

Passenger ticket costs primarily include credit card fees, commissions paid, and global distribution systems booking fees. Costs are allocated entirely to the purchased travel services and are capitalized until recognized when travel services are provided to the customer.

Loyalty Program

Customers may earn points under our customer loyalty program, TrueBlue®, based on the fare paid and fare product purchased for a flight. Customers can also earn points through business partners such as credit card companies, hotels, car rental companies, and our participating airline partners.

Points Earned From a Ticket Purchase. When a TrueBlue® member travels, we recognize a portion of the fare as revenue and defer in air traffic liabilities the portion that represents the value of the points net of spoilage, or breakage. We allocate the transaction price to each performance obligation on a relative standalone basis. We determine the standalone selling price of TrueBlue® points issued using the redemption value approach. To maximize the use of observable inputs, we utilize the actual ticket value of the tickets purchased with TrueBlue® points. The liability is relieved and passenger revenue is recognized when the points are redeemed and the free travel is provided.

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Points Sold to TrueBlue® Partners. Our most significant contract to sell TrueBlue® points is with our co-branded credit card partner. Co-branded credit card partnerships have the following identified performance obligations: air transportation; use of the JetBlue brand name, and access to our frequent flyer customer lists; advertising; and other airline benefits. In determining the estimated standalone selling price, JetBlue considers multiple inputs, methods, and assumptions, including: discounted cash flows; estimated redemption value, net of fulfillment discount; points expected to be awarded and redeemed; estimated annual spending by cardholders; estimated annual royalty for use of JetBlue's frequent flyer customer lists; and estimated utilization of other airline benefits. Payments are typically due monthly based on the volume of points sold during the period, and the terms of our marketing contracts are generally from one to ten years. The overall consideration received is allocated to each performance obligation based on its relative standalone selling price. The air transportation element is deferred and recognized as passenger revenue when the points are redeemed. The other elements are recognized as other revenue when the performance obligations related to those services are satisfied, which is generally the same period as when consideration is received from the participating company.

Amounts allocated to the air transportation element which are initially deferred include a portion that are expected to be redeemed during the following twelve months (included within Air traffic liability), and a portion that are not expected to be redeemed during the following twelve months (included within Air traffic liability - non-current). We periodically update this analysis and adjust the split between current and non-current liabilities as appropriate.

Points earned by TrueBlue® members never expire. TrueBlue® members can pool points between small groups of people, branded as Points Pooling™. Breakage is estimated using historical redemption patterns to determine a breakage rate. Breakage rates used to estimate breakage revenue are evaluated annually. Changes to breakage estimates impact revenue recognition prospectively.

Accounting for Long-Lived Assets

In accounting for long-lived assets, we make estimates about the expected useful lives, projected residual values, and the potential for impairment. In estimating useful lives and residual values of our aircraft, we have relied upon actual industry experience with the same or similar aircraft types and our anticipated utilization of the aircraft. Changing market prices of new and used aircraft, government regulations, and changes in our maintenance program or operations could result in changes to these estimates.

Our long-lived assets are evaluated for impairment when events and circumstances indicate the assets may be impaired. Indicators include operating or cash flow losses, significant decreases in market value, or changes in technology.

To determine if impairment exists for our aircraft used in operations, we group our aircraft by fleet-type (the lowest level for which there are identifiable cash flows) and then estimate their future cash flows based on projections of capacity, aircraft age, maintenance requirements, and other relevant conditions. An impairment occurs when the sum of the estimated undiscounted future cash flows are less than the aggregate carrying value of the fleet. The impairment loss recognized is the amount by which the fleet's carrying value exceeds its estimated fair value. We estimate aircraft fair value using third party valuations which consider the effects of the current market environment, age of the assets, maintenance condition of the airframe and engines and marketability. We recorded $52 million of impairment related to our Embraer E190 fleet transition for the year ended December 31, 2022.

Refer to Note 16 to our consolidated financial statements included in Item 8 for further details of our impairment charges.

Lease Accounting

We operate airport facilities, office buildings, and aircraft under operating leases with minimum lease payments. We recognize the costs associated with these agreements as rent expense on a straight-line basis over the expected lease term. Within the provisions of certain leases, there are minimum escalations in payments over the base lease term. There are also periodic adjustments of lease rates, landing fees, and other charges applicable under such agreements, as well as renewal periods. The effects of the escalations and other adjustments have been reflected in rent expense on a straight-line basis over the lease term. This includes renewal periods when it is deemed to be reasonably assured at the inception of the lease. The amortization period for leasehold improvements is the term used in calculating straight-line rent expense or their estimated economic life, whichever is shorter.

Derivative Instruments used for Aircraft Fuel

We utilize financial derivative instruments to manage the risk of changing aircraft fuel prices. We do not purchase or hold any derivative instrument for trading purposes. Fair values are determined using commodity prices provided to us by independent third parties. When possible, we designate these instruments as cash flow hedges for accounting purposes, as defined by the Derivatives and Hedging topic of the Codification which permits the deferral of the effective portions of gains or losses until contract settlement.

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The Derivatives and Hedging topic is a complex accounting standard. It requires us to develop and maintain a significant amount of documentation related to:

(1) our fuel hedging program and fuel management approach,

(2) statistical analysis supporting a highly correlated relationship between the underlying commodity in the derivative financial instrument and the risk being hedged, i.e. aircraft fuel, on both a historical and prospective basis, and

(3) cash flow designation for each hedging transaction executed, to be developed concurrently with the hedging transaction.

This documentation requires us to estimate forward aircraft fuel prices since there is no reliable forward market for aircraft fuel. These prices are developed through the observation of similar commodity futures prices, such as crude oil and/or heating oil, and adjusted based on variations to those like commodities. Historically, our hedges have settled within 24 months; therefore, the deferred gains and losses have been recognized into earnings over a relatively short period of time.

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REGULATION G RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

We sometimes use non-GAAP financial measures in this report. Non-GAAP financial measures are financial measures that are derived from the consolidated financial statements, but that are not presented in accordance with generally accepted accounting principles in the United States, or GAAP. We believe these non-GAAP financial measures provide a meaningful comparison of our results to others in the airline industry and our prior year results. Investors should consider these non-GAAP financial measures in addition to, and not as a substitute for, our financial performance measures prepared in accordance with GAAP. Further, our non-GAAP information may be different from the non-GAAP information provided by other companies. The information below provides an explanation of each non-GAAP financial measure and shows a reconciliation of non-GAAP financial measures used in this filing to the most directly comparable GAAP financial measures.

Operating Expense per Available Seat Mile, excluding fuel and related taxes, other non-airline operating expenses, and special items (“CASM Ex-Fuel”)

Operating expenses per available seat mile, or CASM, is a common metric used in the airline industry. We exclude aircraft fuel and related taxes, operating expenses related to other non-airline businesses, such as our subsidiaries, JetBlue Technology Ventures and JetBlue Travel Products, and special items from operating expenses to determine CASM ex-fuel, which is a non-GAAP financial measure.

Special items for 2022 include impairment related to our Embraer E190 fleet transition, expenses related to the ALPA contract ratification bonus, expenses related to our acquisition of Spirit, and expenses related to the implementation of the TWU contract.

Special items for 2021 include contra-expenses recognized on the utilization of federal grants received under various payroll support programs, contra-expenses recognized on the Employee Retention Credits provided by the CARES Act, and one-time costs related to the ratification of the collective bargaining agreement with our inflight crewmembers.

Special items for 2020 include contra-expenses recognized on the utilization of payroll support grants received under the CARES Act, contra-expenses recognized on the Employee Retention Credits provided by the CARES Act, impairment related to our Embraer E190 fleet transition, losses generated from certain aircraft sale-leaseback transactions, and one-time costs associated with our voluntary crewmember separation programs.

Special items for 2019 include impairment related to our Embraer E190 fleet transition as well as one-time costs related to the ratification and implementation of our pilots' collective bargaining agreement.

We believe that CASM ex-fuel is useful for investors because it provides investors the ability to measure financial performance excluding items beyond our control, such as fuel costs, which are subject to many economic and political factors, or not related to the generation of an available seat mile, such as operating expense related to other non-airline businesses. We believe this non-GAAP measure is more indicative of our ability to manage airline costs and is more comparable to measures reported by other major airlines.

Reconciliation of Operating Expense, Income (Loss) before Taxes, Net Income (Loss) and Earnings (Loss) per Share, excluding special items and gain on equity investments

Our GAAP results in the applicable periods were impacted by credits and charges that are deemed special items.

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Special items for 2022 include impairment related to our Embraer E190 fleet transition, expenses related to the ALPA contract ratification bonus, expenses related to our acquisition of Spirit, and expenses related to the implementation of the TWU contract.

In 2021, special items include contra-expenses recognized on the utilization of federal grants received under various payroll support programs, contra-expenses recognized on the Employee Retention Credits (ERCs) provided by the CARES Act, and one-time costs related to the ratification of the collective bargaining agreement with our inflight crewmembers.

Special items in 2020 include contra-expenses recognized on the utilization of payroll support grants received under the CARES Act, contra-expenses recognized on ERCs, impairment related to our Embraer E190 fleet transition, losses generated from certain aircraft sale-leaseback transactions, and one-time costs associated with our voluntary crewmember separation programs.

Certain gains and losses on our equity investments were also excluded from our 2022 and 2021 non-GAAP results.

We believe the impact of these items distort our overall trends and that our metrics are more comparable with the presentation of our results excluding the impact of these items. The table below provides a reconciliation of our GAAP reported amounts to the non-GAAP amounts excluding the impacts of these items.

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Adjusted Debt to Capitalization Ratio

Adjusted debt to capitalization ratio is a non-GAAP financial measure which we believe is relevant in assessing the Company's overall debt profile. Adjusted debt includes aircraft operating lease liabilities, in addition to total debt and finance lease obligations. Adjusted capitalization represents total equity plus adjusted debt. Investors should consider this non-GAAP financial measure in addition to, and not as a substitute for, our financial measures prepared in accordance with GAAP.

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Free Cash Flow

The table below reconciles cash provided by operations determined in accordance with GAAP to Free Cash Flow, a non-GAAP financial measure. We believe that Free Cash Flow is a relevant metric in measuring our financial strength and is useful in assessing our ability to fund future capital commitments and other obligations. Investors should consider this non-GAAP financial measure in addition to, and not as a substitute for, our financial measures prepared in accordance with GAAP.

Glossary of Airline terminology

Airline terminology used in this section and elsewhere in this Report:

•Aircraft utilization - The average number of block hours operated per day per aircraft for the total fleet of aircraft.

•Available seat miles - The number of seats available for passengers multiplied by the number of miles the seats are flown.

•Average fare - The average one-way fare paid per flight segment by a revenue passenger.

•Average fuel cost per gallon - Total aircraft fuel costs, including fuel taxes and effective portion of fuel hedging, divided by the total number of fuel gallons consumed.

•Average stage length - The average number of miles flown per flight.

•Load factor - The percentage of aircraft seating capacity actually utilized, calculated by dividing revenue passenger miles by available seat miles.

•Operating expense per available seat mile - Operating expenses divided by available seat miles.

•Operating expense per available seat mile, excluding fuel - Operating expenses, less aircraft fuel, other non-airline expenses, and special items, divided by available seat miles.

•Operating revenue per available seat mile - Operating revenues divided by available seat miles.

•Passenger revenue per available seat mile - Passenger revenue divided by available seat miles.

•Revenue passengers - The total number of paying passengers flown on all flight segments.

•Revenue passenger miles - The number of miles flown by revenue passengers.

•Yield per passenger mile - The average amount one passenger pays to fly one mile.

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